Question

Bramble, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 19,800 Tri-Robos is as follows. Cost Direct materials ($51 per robot) $1,009,800 Direct labor ($40 per robot) 792,000 Variable overhead ($6 per robot) 118,800 Allocated fixed overhead ($30 per robot) 594,000 Total $2,514,600 Bramble is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,296,800. Following are independent assumptions. Assume that $405,000 of the fixed overhead cost can be avoided. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable overhead Fixed overhead Purchase price Total annual cost $ $ $ Using incremental analysis, determine whether Bramble should accept this offer. The offer . Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Bramble can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable overhead Fixed overhead Opportunity cost Purchase price Totals $ $ $ Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offer .

Answer 1

Bramble Inc. - Tri robo
	Make	Buy	Incremental costs ( savings )
Purchase price		2296800	-2296800
Direct materials	1009800		1009800
Direct labour	792000		792000
Variable overhead	118800		118800
Fixed overhead	405000		405000
			0
Total annual cost	2325600	2296800	28800
Buy Tri - robos as it will result in cost savings of $ 28800.
Bramble Inc. - Tri robo
	Make	Buy	Incremental costs ( savings )
Purchase price		2296800	-2296800
Direct materials	1009800		1009800
Direct labour	792000		792000
Variable overhead	118800		118800
Opportunity cost	375000		375000
Total annual cost	2295600	2296800	-1200
Make tri robos inhouse as it will result in cost savings of $ 1200.